The demise of top-100 firm Cobbetts should serve as a wake-up call for legal practices with outdated structures and mounting bank debts, legal sector finance experts said this week.
The Manchester-headquartered firm was rescued last week when national firm DWF announced its intention to acquire it in a buyout which has all the hallmarks of a pre-pack deal.
The two firms had previously held merger talks, but these were abandoned a year ago, amid ‘uncertain market conditions’.
However, DWF was able to announce a deal within 24 hours of Cobbetts’ revelation that it was up for sale after encountering poor trading conditions at the end of 2012.
Staff members were due to be transferred this week, although it was not clear how many of the 492 workforce would be retained.
While DWF hailed the acquisition as providing certainty for clients, the fate of the 74-partner practice may set alarms ringing at other similar-sized firms.
Nigel Bostock, a partner at accountancy firm Crowe Clark Whitehill, said a survey of law firms last year revealed an increasing tendency to increase bank loans and overdraft facilities. He warned: ‘The days of banks looking at professional practices as secure, safe businesses and automatically lending are over.’
James Tsolakis, head of legal services at RBS, said pay norms at firms must change if activity is in decline. ‘There will be less cash circulating through the firm and therefore partners can’t expect their firm to deliver a return at historic levels.’
DWF’s acquisition of Cobbetts will add to its 1,800 headcount and continue recent rapid growth. Since rejecting a merger with Cobbetts, the firm has struck deals with Scottish practice Biggart Baillie and London-based Fishburns.